European Embedded Value. (EEV) basis results 298 Index to EEV basis results. 01 Group overview 02 Strategic report 03 Governance 04 Directors

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1 European Embedded Value (EEV) basis results 298 Index to EEV basis results 6 Apprenticeship programme Our communities Over the past two years Prudential UK has recruited 130 young people to join the highly regarded apprenticeship programme. Find out more on page Group overview 02 Strategic report 03 Governance 04 Directors remuneration report 05 Financial statements 06 European Embedded Value (EEV) basis results 07 Additional information Annual Report 2015 Prudential plc 297

2 Index to European Embedded Value (EEV) basis results 299 Post-tax operating profit based on longer-term investment returns 300 Post-tax summarised consolidated income statement 300 Movement in shareholders equity 301 Summary statement of financial position Notes on the EEV basis results Basis of preparation Results analysis by area Analysis of new contribution Operating profit from in force Short-term fluctuations in investment returns Effect of changes in economic assumptions Net core structural borrowings of shareholder-financed Analysis of movement in free surplus Reconciliation of movement in shareholders equity Reconciliation of movement in net worth and value of in-force for long-term Expected transfer of value of in-force to free surplus Sensitivity of results to alternative assumptions Methodology and accounting presentation Assumptions Effect of Solvency II on EEV basis results on 1 January New premiums and contributions Description of EEV basis reporting In broad terms, IFRS profits for long-term reflect the aggregate of results on a traditional accounting basis. By contrast, embedded value is a way of reporting the value of the life. The European Embedded Value principles were published by the CFO Forum of major European insurers in May 2004 and subsequently supplemented by Additional Guidance issued in October The impact of Solvency II is not reflected in these results in line with the guidance issued by the CFO Forum in October 2015 (see note 15 for further details). The principles provide consistent definitions, a framework for setting actuarial assumptions and an approach to the underlying methodology and disclosures. Results prepared under the EEV principles capture the discounted value of future profits expected to arise from the current book of long-term. The results are prepared by projecting cash flows by product, using best estimate assumptions for all relevant factors. Furthermore, in determining these expected profits, full allowance is made for the risks attached to their emergence and the associated cost of capital, taking into account recent experience in assessing likely future persistency, mortality, morbidity and expenses. Further details are explained in notes 13 and Prudential plc Annual Report

3 European Embedded Value (EEV) basis results Post-tax operating profit based on longer-term investment returns Results analysis by area Note note (iii) Asia New 3 1,490 1,162 Business in force Long-term 2,321 1,900 Eastspring Investments ,422 1,978 US New Business in force Long-term 1,808 1,528 Broker-dealer and asset management 7 6 1,815 1,534 UK * New Business in force Long-term General commission UK M&G Prudential Capital ,261 1,140 Other income and expenditure note (i) (566) (531) Solvency II and restructuring costs note (ii) (51) (36) Results of the sold PruHealth and PruProtect es 11 Operating profit based on longer-term investment returns 4,881 4,096 Analysed as profit (loss) from: New * 3 2,617 2,115 Business in force* 4 2,375 2,048 Long-term * 4,992 4,163 Asset management Other results (595) (537) 4,881 4,096 * In order to show the UK long-term on a comparable basis, the 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect es which is shown separately. Notes (i) EEV basis other income and expenditure represents the post-tax IFRS basis result less the unwind of expected margins on the internal management of the assets of the covered (as explained in note 13(a)(vii)) and an adjustment for the shareholders share of the pension costs attributable to the with-profits. (ii) Solvency II and restructuring costs comprise the net of tax charge recognised on an IFRS basis and the additional amount recognised on the EEV basis for the shareholders share incurred by the PAC with-profits fund. (iii) The comparative results have been prepared using previously reported average exchange rates for the year. Basic earnings per share Based on post-tax operating profit including longer-term investment returns (in pence) 191.2p 160.7p Based on post-tax profit attributable to equity holders of the Company (in pence) 154.8p 170.4p Average number of shares (millions) 2,553 2, Group overview 02 Strategic report 03 Governance 04 Directors remuneration report 05 Financial statements 06 European Embedded Value (EEV) basis results 07 Additional information Annual Report 2015 Prudential plc 299

4 European Embedded Value (EEV) basis results continued Post-tax summarised consolidated income statement Note Asia 2,422 1,978 US 1,815 1,534 UK * 1,261 1,140 Other income and expenditure (566) (531) Solvency II and restructuring costs (51) (36) Results of the sold PruHealth and PruProtect es 11 Operating profit based on longer-term investment returns 4,881 4,096 Short-term fluctuations in investment returns 5 (1,208) 763 Effect of changes in economic assumptions 6 57 (369) Mark to market value movements on core borrowings 221 (187) Gain on sale of PruHealth and PruProtect 44 Costs of domestication of Hong Kong branch (4) non-operating (loss) profit (930) 247 Profit for the year attributable to equity holders of the Company 3,951 4,343 * In order to show the UK long-term on a comparable basis, the 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect es which is shown separately. In November 2014, PAC completed the sale of its 25 per cent equity stake in the PruHealth and PruProtect es to Discovery Group Europe Limited resulting in a gain of 44 million in Movement in shareholders equity Note Profit for the year attributable to equity shareholders 3,951 4,343 Items taken directly to equity: Exchange movements on foreign and net investment hedges Dividends (974) (895) New share capital subscribed 7 13 Shareholders share of actuarial and other gains and losses on defined benefit pension schemes 25 (11) Reserve movements in respect of share-based payments Treasury shares (18) (54) Mark to market value movements on Jackson assets backing surplus and required capital (76) 77 Net increase in shareholders equity 9 3,198 4,316 Shareholders equity at beginning of year: As previously reported 9 29,161 24,856 Effect of the domestication of Hong Kong branch on 1 January 2014* (11) 29,161 24,845 Shareholders equity at end of year 9 32,359 29,161 * On 1 January 2014, the Hong Kong branch of PAC was transferred to separate subsidiaries established in Hong Kong. The overall EEV basis effect of (11) million represents the cost of holding higher required capital levels in the stand-alone Hong Kong shareholder-backed long-term. 300 Prudential plc Annual Report

5 Movement in shareholders equity Comprising: Long-term note 9 31 Dec 2015 m 31 Dec 2014 m Asset management and other Long-term Asset management and other Asia 13, ,182 12, ,819 US 9, ,669 8, ,536 UK 9, ,669 8, ,452 M&G 1,774 1,774 1,572 1,572 Prudential Capital Other (3,005) (3,005) (2,292) (2,292) Shareholders equity at end of year 33,010 (651) 32,359 29,357 (196) 29,161 Representing: Net assets excluding acquired goodwill and holding company net borrowings 32, ,643 29,124 1,542 30,666 Acquired goodwill 233 1,230 1, ,230 1,463 Holding company net borrowings at market value note 7 (2,747) (2,747) (2,968) (2,968) 33,010 (651) 32,359 29,357 (196) 29,161 Summary statement of financial position Note 31 Dec 2015 m 31 Dec 2014 m assets less liabilities, before deduction for funds 340, ,633 Less funds:* Policyholder liabilities (net of reinsurers share) and unallocated surplus of with-profits funds (327,711) (314,822) Less shareholders accrued interest in the long-term 19,404 17,350 (308,307) (297,472) net assets 9 32,359 29,161 Share capital Share premium 1,915 1,908 IFRS basis shareholders reserves 10,912 9,775 IFRS basis shareholders equity 9 12,955 11,811 Additional EEV basis retained profit 9 19,404 17,350 EEV basis shareholders equity (excluding non-controlling interests) 9 32,359 29,161 * Including liabilities in respect of products classified as investment contracts under IFRS 4. Net asset value per share 31 Dec Dec 2014 Based on EEV basis shareholders equity of 32,359 million (2014: 29,161 million) (in pence) 1,258p 1,136p Number of issued shares at year end (millions) 2,572 2,568 Annualised return on embedded value* 17% 16% * Annualised return on embedded value is based on EEV post-tax operating profit, as a percentage of opening EEV basis shareholders equity. The supplementary information on pages 299 to 328 was approved by the Board of Directors on 8 March Paul Manduca Chairman Mike Wells Group Chief Executive Nic Nicandrou Chief Financial Officer 01 Group overview 02 Strategic report 03 Governance 04 Directors remuneration report 05 Financial statements 06 European Embedded Value (EEV) basis results 07 Additional information Annual Report 2015 Prudential plc 301

6 Notes on the EEV basis results 1 Basis of preparation The EEV basis results have been prepared in accordance with the EEV Principles issued by the European Insurance CFO Forum in May 2004, subsequently supplemented by Additional Guidance on EEV Disclosure issued in October The impact of Solvency II is not reflected in these results in line with the guidance issued by the CFO Forum in October 2015 (see note 15 for further details). Where appropriate, the EEV basis results include the effects of adoption of EU-endorsed IFRS. The directors are responsible for the preparation of the supplementary information in accordance with the EEV Principles. Except for the change in presentation of the operating results for UK to show separately the contribution from the sold PruHealth and PruProtect es and the presentation of Prudential Capital as a separate segment, the 2014 results have been derived from the EEV basis results supplement to the Company s statutory accounts for A detailed description of the EEV methodology and accounting presentation is provided in note Results analysis by area The 2014 comparative results are shown below on both actual exchange rates (AER) and constant exchange rates (CER) bases. The 2014 CER comparative results are translated at 2015 average exchange rates. Annual premium and contribution equivalents (APE) note 16 % change Note AER CER AER CER Asia 2,853 2,237 2,267 28% 26% US 1,729 1,556 1,677 11% 3% UK * 1, % 23% * 3 5,607 4,627 4,778 21% 17% * In order to show the UK long-term on a comparable basis, the 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect es. Post-tax operating profit % change Note AER CER AER CER Asia New 3 1,490 1,162 1,168 28% 28% Business in force % 13% Long-term 2,321 1,900 1,903 22% 22% Eastspring Investments % 28% 2,422 1,978 1,982 22% 22% US New % 8% Business in force % 11% Long-term 1,808 1,528 1,647 18% 10% Broker-dealer and asset management % 1,815 1,534 1,654 18% 10% UK * New % 23% Business in force % 14% Long-term % 17% General commission % 16% UK % 17% M&G % 1% Prudential Capital (45)% (45)% 1,261 1,140 1,140 11% 11% Other income and expenditure (566) (531) (531) (7)% (7)% Solvency II and restructuring costs (51) (36) (36) (42)% (42)% Results of the sold PruHealth and PruProtect es n/a n/a Operating profit based on longer-term investment returns 4,881 4,096 4,220 19% 16% 302 Prudential plc Annual Report

7 % change Note AER CER AER CER Analysed as profit (loss) from: New * 3 2,617 2,115 2,175 24% 20% Business in force* 4 2,375 2,048 2,110 16% 13% long-term * 4,992 4,163 4,285 20% 16% Asset management % 3% Other results (595) (537) (537) (11)% (11)% 4,881 4,096 4,220 19% 16% * In order to show the UK long-term on a comparable basis, the 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect es, which is shown separately. Post-tax profit % change Note AER CER AER CER Operating profit based on longer-term investment returns 4,881 4,096 4,220 19% 16% Short-term fluctuations in investment returns 5 (1,208) (258)% (257)% Effect of changes in economic assumptions 6 57 (369) (389) 115% 115% Other non-operating profit (loss) 221 (147) (147) 250% 250% non-operating (loss) profit (930) (477)% (496)% Profit for the year attributable to shareholders 3,951 4,343 4,455 (9)% (11)% Basic earnings per share (in pence) % change AER CER AER CER Based on post-tax operating profit including longer-term investment returns 191.2p 160.7p 165.6p 19% 15% Based on post-tax profit 154.8p 170.4p 174.8p (9)% (11)% 01 Group overview 02 Strategic report 03 Governance 04 Directors remuneration report 05 Financial statements 06 European Embedded Value (EEV) basis results 07 Additional information Annual Report 2015 Prudential plc 303

8 Notes on the EEV basis results continued 3 Analysis of new contribution (i) Group summary Annual premium and contribution equivalents (APE) note 16 m Present value of new premiums (PVNBP) note 16 m 2015 New contribution note m New margin Asia note (ii) 2,853 15,208 1, US 1,729 17, UK 1,025 9, ,607 41,563 2, APE % PVNBP % Annual premium and contribution equivalents (APE) note 16 m Present value of new premiums (PVNBP) note 16 m 2014 New contribution note m New margin Asia note (ii) 2,237 12,331 1, US 1,556 15, UK * 834 7, * 4,627 35,191 2, APE % PVNBP % * In order to show the UK long-term on a comparable basis, the 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect es. Note The increase in new contribution of 502 million from 2,115 million for 2014 to 2,617 million for 2015 comprises an increase on a CER basis of 442 million and an increase of 60 million for foreign exchange effects. The increase of 442 million on the CER basis comprises a contribution of 377 million for higher sales volumes, a 21 million effect of higher long-term interest rates (generated by the active basis of setting economic assumptions) (analysed as Asia (2) million, US 20 million and UK 3 million) and a 44 million impact of pricing, product and other actions. (ii) Asia new contribution by territory China Hong Kong India Indonesia Korea Taiwan Other Asia 1,490 1,162 1,168 AER CER 304 Prudential plc Annual Report

9 4 Operating profit from in force (i) Group summary Asia note (ii) US note (iii) 2015 m UK note (iv) Unwind of discount and other expected returns ,709 Effect of changes in operating assumptions Experience variances and other items ,375 Asia note (ii) US note (iii) 2014 m UK note (iv) Unwind of discount and other expected returns ,440 Effect of changes in operating assumptions Experience variances and other items ,048 Note The movement in operating profit from in force of 327 million from 2,048 million for 2014 to 2,375 million for 2015 comprises: note note 2015 m Increase in unwind of discount and other expected returns: Effects of changes in: Interest rates 6 Foreign exchange 22 Growth in opening value and other items Year-on-year change in effects of operating assumptions, experience variances and other items 58 Net increase in operating profit from in force 327 (ii) Asia Unwind of discount and other expected returns note (a) Effect of changes in operating assumptions: Mortality and morbidity note (b) Persistency and withdrawals note (c) (46) (17) Expense Other note (d) (1) (5) (4) Experience variances and other items: Mortality and morbidity note (e) Persistency and withdrawals note (f) Expense note (g) (32) (27) Other including development expenses 24 (2) Asia Group overview 02 Strategic report 03 Governance 04 Directors remuneration report 05 Financial statements 06 European Embedded Value (EEV) basis results 07 Additional information Annual Report 2015 Prudential plc 305

10 Notes on the EEV basis results continued 4 Operating profit from in force continued Notes (a) The increase in unwind of discount and other expected returns of 101 million from 648 million for 2014 to 749 million for 2015 comprises an effect of 119 million for the growth in the opening in-force value, partially offset by a (10) million decrease from changes in interest rates and an (8) million decrease for foreign exchange effects. (b) The 2015 credit of 63 million for mortality and morbidity assumptions mainly reflects the effect of lower projected mortality rates for traditional and linked in Malaysia. The 2014 credit of 27 million reflected a number of offsetting items, including the effect of reduced projected mortality rates in Hong Kong. (c) The 2015 charge of (46) million for persistency assumption changes comprises positive and negative contributions from our various, with positive persistency updates on health and protection products being more than offset by negative effects for unit-linked. The 2014 charge of (17) million mainly reflected increased partial withdrawal assumptions on unit-linked in Korea. (d) The 2014 credit of 47 million for other assumption changes reflected a number of offsetting items, including modelling improvements and those arising from asset allocation changes in Hong Kong. (e) The positive mortality and morbidity experience variance in 2015 of 58 million (2014: 23 million) mainly reflects better than expected experience in Hong Kong and Indonesia. (f) The positive 20 million for persistency and withdrawals experience in 2015 (2014: 44 million) is driven mainly by favourable experience in Hong Kong. (g) The expense experience variance in 2015 is negative (32) million (2014: (27) million). The variance principally arises in which are currently sub-scale (China, Malaysia Takaful and Taiwan) and from short-term overruns in India. (iii) US Unwind of discount and other expected returns note (a) Effect of changes in operating assumptions: Persistency note (b) Other (24) Experience variances and other items: Spread experience variance note (c) Amortisation of interest-related realised gains and losses note (d) Other note (e) US Notes (a) The increase in unwind of discount and other expected returns of 90 million from 382 million for 2014 to 472 million for 2015 comprises a 56 million effect for the underlying growth in the in-force book, a 30 million foreign currency translation effect, and a 4 million impact of the 10 basis points increase in US 10-year treasury rates. (b) The credit of 139 million in 2015 (2014: 55 million) for persistency assumption changes principally relates to reduced lapse rates for variable annuity to more closely align to recent experience. (c) The spread assumption for Jackson is determined on a longer-term basis, net of provision for defaults (see note 14 (ii)). The spread experience variance in 2015 of 149 million (2014: 192 million) includes the positive effect of transactions previously undertaken to more closely match the overall asset and liability duration. The reduction compared to the prior year reflects the effects of declining yields in the portfolio caused by the prolonged low interest rate environment. (d) The amortisation of interest-related gains and losses reflects the fact that when bonds that are neither impaired nor deteriorating are sold and reinvested there will be a consequent change in the investment yield. The realised gain or loss is amortised into the result over the year when the bonds would have otherwise matured to better reflect the long-term returns included in operating profits. (e) Other experience variances of 193 million in 2015 (2014: 118 million) include the effects of positive persistency experience and other favourable experience variances. The 2015 result benefits from higher levels of tax relief from prior period adjustments. (iv) UK Unwind of discount and other expected returns note (a) Reduction in future UK corporate tax rate note (b) 55 Other note (c) 2 66 UK Notes (a) The increase in unwind of discount and other expected returns of 78 million from 2014 of 410 million to 488 million for 2015 comprises an effect of 66 million reflecting the underlying growth in the in-force book and a 12 million effect of the 20 basis points increase in gilt yields. (b) The 55 million credit in 2015 for the change in UK corporate tax rates reflects the beneficial effect of applying lower corporation tax rates (note 14) to future life profits from in-force in the UK. (c) Other items of 2 million (2014: 66 million) comprise the following: Longevity re note (d) (134) (8) Impact of specific management actions in second half of 2015 ahead of Solvency II note (e) 75 Other items note (f) (d) (e) (f) During 2015, we extended our longevity re programme to cover an additional 6.4 billion of annuity liabilities at a net cost of (134) million. Of this total, some 4.8 billion was transacted in the second half of 2015 at a net cost of (88) million. The 75 million benefit arose from the specific management actions taken in the second half of 2015 to position the balance sheet more efficiently under the new Solvency II regime. The credit of 61 million for 2015 comprises assumption updates and experience variances for mortality, expense, persistency and other items. 306 Prudential plc Annual Report

11 5 Short-term fluctuations in investment returns Short-term fluctuations in investment returns included in profit for the year arise as follows: (i) Group summary Asia note (ii) US note (iii) UK note (iv) Other note (v) (ii) Asia The short-term fluctuations in investment returns for Asia comprise: (206) 439 (753) (166) (194) 583 (55) (93) (1,208) 763 Hong Kong (144) 178 Indonesia (53) 35 Singapore (104) 92 Taiwan Other Asia note (206) 439 Note For 2015, the charge of (144) million in Hong Kong, (53) million in Indonesia and (104) million in Singapore principally arise from unrealised losses on bonds backing surplus assets driven by increases in long-term interest rates (as shown in note 14(i)) and from the effect of falls in equity markets in the region. The credit of 44 million in Taiwan arises from unrealised gains on bonds following the decrease in long-term interest rates. (iii) US The short-term fluctuations in investment returns for US comprise: Investment return related experience on fixed income securities note (a) (17) 31 Investment return related impact due to changed expectation of profits on in-force variable annuity in future periods based on current period separate account return, net of related hedging activity and other items note (b) (736) (197) US (753) (166) Notes (a) The (charge) credit relating to fixed income securities comprises the following elements: the impact on portfolio yields of changes in the asset portfolio in the year; the excess of actual realised gains and losses over the amortisation of interest-related realised gains and losses recorded in the profit and loss account; and credit experience (versus the longer-term assumption). (b) This item reflects the net impact of: changes in projected future fees and future benefit costs arising from the effect of market fluctuations on the growth in separate account asset values in the current reporting period; and related hedging activity arising from realised and unrealised gains and losses on equity-related hedges and interest rate options, and other items. 01 Group overview 02 Strategic report 03 Governance 04 Directors remuneration report 05 Financial statements 06 European Embedded Value (EEV) basis results 07 Additional information Annual Report 2015 Prudential plc 307

12 Notes on the EEV basis results continued 5 Short-term fluctuations in investment returns continued (iv) UK The short-term fluctuations in investment returns for UK comprise: Shareholder-backed annuity note (a) (88) 310 With-profits, unit-linked and other note (b) (106) 273 UK (194) 583 Notes (a) Short-term fluctuations in investment returns for shareholder-backed annuity comprise: (losses) gains on surplus assets compared to the expected long-term rate of return reflecting (increases) reductions in corporate bond and gilt yields; the difference between actual and expected default experience; and the effect of mismatching for assets and liabilities of different durations and other short-term fluctuations in investment returns. (b) The (106) million fluctuation in 2015 for with-profits, unit-linked and other represents the impact of achieving a 3.1 per cent pre-tax return on the with-profits fund (including unallocated surplus) compared to the assumed rate of return of 5.4 per cent (2014: total return of 9.5 per cent compared to assumed rate of 5.0 per cent). This line also includes the effect of a partial hedge of future shareholder transfers expected to emerge from the UK s with-profits sub-fund entered into to protect future shareholder with-profits transfers from declines in the UK equity market. (v) Other Short-term fluctuations in investment returns for other of (55) million (2014: (93) million) include unrealised value movements on investments held outside our main life. 6 Effect of changes in economic assumptions The effects of changes in economic assumptions for in-force included in the profit for the year arise as follows: (i) Group summary Asia note (ii) (148) (269) US note (iii) 109 (77) UK note (iv) 96 (23) 57 (369) (ii) Asia The effect of changes in economic assumptions for Asia comprises: Hong Kong 100 (121) Indonesia (15) 25 Malaysia (30) 11 Singapore (50) (42) Taiwan (97) (21) Other (56) (121) Asia note (148) (269) Note The negative 2015 effect in Malaysia, Indonesia and Singapore reflects the impact of valuing future health and protection profits at higher discount rates, driven by the increase in long-term interest rates in these countries (see note 14(i)). The negative effect in Taiwan is driven by a decrease in fund earned rates reflecting the decline in long-term interest rates and changes to the asset portfolio mix. The positive impact in Hong Kong is driven by the effect of higher assumed future fund earned rates for participating. 308 Prudential plc Annual Report

13 (iii) US The effect of changes in economic assumptions for US comprises: Variable annuity 104 (228) Fixed annuity and other general account US note 109 (77) Note For 2015, the credit of 109 million mainly reflects the increase in the assumed separate account return and reinvestment rates for variable annuity, following the 10 basis points increase in the US treasury rate (2014: decrease of 90 basis points), resulting in higher projected fee income and a decrease in projected benefit costs. (iv) UK The effect of changes in economic assumptions for UK comprises: Shareholder-backed annuity note (a) (56) 352 With-profits and other note (b) 152 (375) UK 96 (23) Notes (a) For shareholder-backed annuity the overall negative (2014: positive) effect reflects the change in the present value of projected spread income arising mainly from the increase (2014: reduction) in the risk discount rates as shown in note 14(iii). (b) The credit of 152 million in 2015 reflects the net effect of changes in fund earned rates and risk discount rates (as shown in note 14 (iii)), driven by the 20 basis points increase in gilt rates (2014: decrease of 130 basis points), together with the impact from changes in the composition of the asset portfolio. 7 Net core structural borrowings of shareholder-financed IFRS basis 31 Dec 2015 m 31 Dec 2014 m Mark to market value adjustment EEV basis at market value IFRS basis Mark to market value adjustment EEV basis at market value Holding company* cash and short-term investments (2,173) (2,173) (1,480) (1,480) Core structural borrowings central funds note 4, ,920 3, ,448 Holding company net borrowings 2, ,747 2, ,968 Core structural borrowings Prudential Capital Core structural borrowings Jackson Net core structural borrowings of shareholderfinanced 2, ,246 2, ,445 * Including central finance subsidiaries. Note In June 2015, the Company issued core structural borrowings of 600 million 5.00 per cent subordinated notes due in The proceeds, net of discount adjustment and costs, were 590 million. 01 Group overview 02 Strategic report 03 Governance 04 Directors remuneration report 05 Financial statements 06 European Embedded Value (EEV) basis results 07 Additional information Annual Report 2015 Prudential plc 309

14 Notes on the EEV basis results continued 8 Analysis of movement in free surplus For EEV covered, free surplus is the excess of the regulatory basis net assets for EEV reporting purposes (net worth) over the capital required to support the covered. Where appropriate, adjustments are made to the net worth so that backing assets are included at fair value rather than cost so as to comply with the EEV Principles. Free surplus for asset management and the UK general commission is taken to be IFRS basis post-tax earnings and shareholders equity. (i) Underlying free surplus generated The 2014 comparative results are shown below on both actual exchange rates (AER) and constant exchange rates (CER) bases. The 2014 CER comparative results are translated at 2015 average exchange rates. % change AER CER AER CER Asia Underlying free surplus generated from in-force life % 16% Investment in new notes (ii)(a), (ii)(g) (413) (346) (352) (19)% (17)% Long-term % 15% Eastspring Investments note (ii)(b) % 28% % 16% US Underlying free surplus generated from in-force life 1,426 1,191 1,284 20% 11% Investment in new note (ii)(a) (267) (187) (201) (43)% (33)% Long-term 1,159 1,004 1,083 15% 7% Broker-dealer and asset management note (ii)(b) % 1,166 1,010 1,090 15% 7% UK * Underlying free surplus generated from in-force life % 38% Investment in new note (ii)(a) (65) (65) (65) Long-term % 42% General commission note (ii)(b) % 16% % 41% M&G note (ii)(b) % 1% Prudential Capital note (ii)(b) (45)% (45)% Underlying free surplus generated 3,050 2,579 2,645 18% 15% Representing: Long-term :* Expected in-force cash flows (including expected return on net assets) 2,730 2,374 2,436 15% 12% Effects of changes in operating assumptions, operating experience variances and other operating items % 66% Underlying free surplus generated from in-force life 3,289 2,688 2,772 22% 19% Investment in new notes (ii)(a), (ii)(g) (745) (598) (618) (25)% (21)% long-term * 2,544 2,090 2,154 22% 18% Asset management and general commission note (ii)(b) % 3% Underlying free surplus generated 3,050 2,579 2,645 18% 15% * In order to show the UK long-term on a comparable basis, the 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect es. 310 Prudential plc Annual Report

15 (ii) Movement in free surplus Long-term and asset management Long-term note 10 Asset management and UK general commission note (b) Free surplus of long-term, asset management and UK general commission Free surplus of long-term, asset management and UK general commission Underlying movement:* Investment in new notes (a), (g) (745) (745) (598) Business in force: Expected in-force cash flows (including expected return on net assets) 2, ,236 2,863 Effects of changes in operating assumptions, operating experience variances and other operating items , ,050 2,579 Disposal of Japan life note (h) Gain on sale of PruHealth and PruProtect 130 Other non-operating items note (c) (407) (53) (460) (266) 2, ,613 2,443 Net cash flows to parent company note (d) (1,271) (354) (1,625) (1,482) Exchange movements, timing differences and other items note (e) Net movement in free surplus 1, ,707 1,091 Balance at beginning of year: As previously reported 4, ,059 4,003 Effect of domestication of Hong Kong branch (35) Balance at end of year 5,642 1,124 6,766 5,059 Representing: Asia note (g) 1, ,748 1,560 US 1, ,733 1,557 UK 2, ,285 1,942 5,642 1,124 6,766 5,059 Balance at beginning of year: Asia 1, ,560 1,379 US 1, ,557 1,074 UK 1, ,942 1,550 4, ,059 4,003 * In order to show the UK long-term on a comparable basis, the 2014 comparative underlying movement in free surplus excludes the contribution from the sold PruHealth and PruProtect es. On 1 January 2014, the Hong Kong branch of PAC was transferred to separate subsidiaries established in Hong Kong. The 2014 EEV basis results included opening adjustments arising from the transfer of capital that was previously held within the UK in respect of the Hong Kong branch and additional capital requirements arising from the newly established subsidiaries with an overall effect of (35) million. 01 Group overview 02 Strategic report 03 Governance 04 Directors remuneration report 05 Financial statements 06 European Embedded Value (EEV) basis results 07 Additional information Annual Report 2015 Prudential plc 311

16 Notes on the EEV basis results continued 8 Analysis of movement in free surplus continued (ii) Movement in free surplus continued Notes (a) Free surplus invested in new represents amounts set aside for required capital and acquisition costs. (b) Free surplus for asset management and the UK general commission is taken to be IFRS basis post-tax earnings and shareholders equity. (c) Non-operating items are principally short-term fluctuations in investment returns and the effect of changes in economic assumptions for long-term. (d) Net cash flows to parent company for long-term reflect the flows as included in the holding company cash flow at transaction rates. (e) Exchange movements, timing differences and other items represent: Long-term 2015 m Asset management and UK general commission Exchange movements note Mark to market value movements on Jackson assets backing surplus and required capital note 9 (76) (76) Shareholders share of actuarial and other gains and losses on defined benefit pension schemes Other items note (f) (f) (g) (h) Other items include the effect of intra-group loans, contingent loan repayments as shown in note 10(i), timing differences arising on statutory transfers and other non-cash items. For 2015, other items for long-term include the effect of a classification change of 702 million from Other to UK in order to align with Solvency II segmental reporting. Investment in new includes the annual amortisation charge of amounts incurred to secure exclusive distribution rights through our bancassurance partners at a rate that reflects the pattern in which the future economic benefits are expected to be consumed by reference to new levels. Included within the overall free surplus balance of our Asia life entities is 287 million representing unamortised amounts incurred to secure exclusive distribution rights through bancassurance partners. These amounts exclude 971 million of Asia distribution rights intangibles that are financed by loan arrangements from central companies, the costs of which are allocated to the Asia life segment as the amortisation cost is incurred. The credit of 23 million in free surplus in 2015 reflects the release of required capital and transfer of value of in-force on the completion of the sale of the Japan life (see note 10). 312 Prudential plc Annual Report

17 9 Reconciliation of movement in shareholders equity Asia note (i) 2015 m Long-term US UK long-term Other note (i) Operating profit (based on longer-term investment returns) Long-term : New note 3 1, ,617 2,617 Business in force note ,375 2,375 2,321 1, ,992 4,992 Asset management Other results (1) (28) (29) (566) (595) Operating profit based on longer-term investment returns 2,321 1, ,963 (82) 4,881 non-operating (loss) profit (354) (654) (98) (1,106) 176 (930) Profit for the year 1,967 1, , ,951 Other items taken directly to equity Exchange movements on foreign and net investment hedges (157) (109) 244 Intra-group dividends (including statutory transfers) and investment in note (ii) (472) (465) (215) (1,152) 1,152 External dividends (974) (974) Other movements note (iii) (7) (14) (618) 53 Mark to market value movements on Jackson assets backing surplus and required capital (76) (76) (76) Net increase in shareholders equity 1,331 1,108 1,214 3,653 (455) 3,198 Shareholders equity at beginning of year 12,312 8,379 8,433 29, ,161 Shareholders equity at end of year 13,643 9,487 9,647 32,777 (418) 32,359 Representing: Statutory IFRS basis shareholders equity: Net assets (liabilities) 3,723 4,154 5,118 12,995 (1,503) 11,492 Goodwill 1,463 1,463 IFRS basis shareholders equity 3,723 4,154 5,118 12,995 (40) 12,955 Additional retained profit (loss) on an EEV basis note (iv) 9,920 5,333 4,529 19,782 (378) 19,404 EEV basis shareholders equity 13,643 9,487 9,647 32,777 (418) 32,359 Balance at beginning of year: Statutory IFRS basis shareholders equity: Net assets (liabilities) 3,315 4,067 3,785 11,167 (819) 10,348 Goodwill 1,463 1,463 IFRS basis shareholders equity 3,315 4,067 3,785 11, ,811 Additional retained profit (loss) on an EEV basis note (iv) 8,997 4,312 4,648 17,957 (607) 17,350 EEV basis shareholders equity 12,312 8,379 8,433 29, ,161 Notes (i) For the purposes of the table above, goodwill of 233 million (2014: 233 million) related to Asia long-term is included in Other. (ii) Intra-group dividends (including statutory transfers) represent dividends that have been declared in the year and amounts accrued in respect of statutory transfers. Investments in reflect increases in share capital. The amounts included in note 8 for these items are as per the holding company cash flow at transaction rates. The difference primarily relates to intra-group loans, timing differences arising on statutory transfers and other non-cash items. (iii) Other movements include the effect of a classification change of 702 million from Other to UK in order to align with Solvency II segmental reporting, which has no overall effect on the Group s EEV. Other movements also includes a credit of 25 million (2014: a charge of (11) million) for the shareholders share of actuarial and other gains and losses on the defined benefit pension schemes. (iv) The additional retained loss on an EEV basis for Other primarily represents the mark to market value adjustment for holding company net borrowings of a charge of (353) million (2014: (579) million), as shown in note 7. Group 01 Group overview 02 Strategic report 03 Governance 04 Directors remuneration report 05 Financial statements 06 European Embedded Value (EEV) basis results 07 Additional information Annual Report 2015 Prudential plc 313

18 Notes on the EEV basis results continued 10 Reconciliation of movement in net worth and value of in-force for long-term Free surplus note 8 Required capital 2015 m net worth Value of in-force note (iii) long-term Group Shareholders equity at beginning of year 4,193 4,556 8,749 20,375 29,124 New contribution note (ii) (745) 493 (252) 2,869 2,617 Existing transfer to net worth 2,611 (355) 2,256 (2,256) Expected return on existing note ,461 1,709 Changes in operating assumptions and experience variances note (10) 666 Solvency II and restructuring costs (29) (29) (29) Operating profit based on longer-term investment returns 2, ,899 2,064 4,963 Disposal of Japan life 23 (48) (25) 25 Other non-operating items (407) (216) (623) (483) (1,106) Profit from long-term 2, ,251 1,606 3,857 Exchange movements on foreign and net investment hedges Intra-group dividends (including statutory transfers) and investment in note (i) (1,373) (1,373) 221 (1,152) Other movements note (v) Shareholders equity at end of year 5,642 4,704 10,346 22,431 32,777 Representing: Asia Shareholders equity at beginning of year 1,347 1,327 2,674 9,638 12,312 New contribution note (ii) (413) 124 (289) 1,779 1,490 Existing transfer to net worth 974 (77) 897 (897) Expected return on existing note Changes in operating assumptions and experience variances note 4 (19) Operating profit based on longer-term investment returns ,594 2,321 Disposal of Japan life 23 (48) (25) 25 Other non-operating items 61 (6) 55 (409) (354) Profit from long-term ,210 1,967 Exchange movements on foreign and net investment hedges (21) (42) (63) (94) (157) Intra-group dividends and investment in (472) (472) (472) Other movements (7) (7) (7) Shareholders equity at end of year 1,503 1,386 2,889 10,754 13,643 US Shareholders equity at beginning of year 1,416 1,710 3,126 5,253 8,379 New contribution note (ii) (267) Existing transfer to net worth 1,064 (196) 868 (868) Expected return on existing note Changes in operating assumptions and experience variances note Solvency II and restructuring costs (1) (1) (1) Operating profit based on longer-term investment returns 1, , ,807 Other non-operating items (541) (162) (703) 49 (654) Profit from long-term 618 (3) ,153 Exchange movements on foreign and net investment hedges Intra-group dividends (465) (465) (465) Other movements (90) (90) (90) Shareholders equity at end of year 1,567 1,806 3,373 6,114 9, Prudential plc Annual Report

19 Free surplus note 8 Required capital 2015 m net worth Value of in-force note (iii) long-term UK Shareholders equity at beginning of year 1,430 1,519 2,949 5,484 8,433 New contribution note (ii) (65) Existing transfer to net worth 573 (82) 491 (491) Expected return on existing note Changes in operating assumptions and experience variances note (230) 57 Solvency II and restructuring costs (28) (28) (28) Operating profit based on longer-term investment returns (19) 835 Other non-operating items 73 (48) 25 (123) (98) Profit from long-term 886 (7) 879 (142) 737 Intra-group dividends (including statutory transfers) note (i) (436) (436) 221 (215) Other movements note (v) Shareholders equity at end of year 2,572 1,512 4,084 5,563 9,647 Notes (i) For UK, the amounts shown for intra-group dividends (including statutory transfers) in free surplus of (436) million and in the value of in-force of 221 million include the impact of intra-group contingent loan repayments during the year. Contingent loan funding represents amounts whose repayment to the lender is contingent upon future surpluses emerging from certain contracts specified under the arrangement. If insufficient surplus emerges on those contracts, there is no recourse to other assets of the Group and the liability is not payable to the degree of shortfall. (ii) New contribution per 1 million of free surplus invested: (iii) (iv) (v) Asia US UK long-term Asia US UK * long-term Post-tax new contribution note 3 1, ,617 1, ,115 Free surplus invested in new (413) (267) (65) (745) (346) (187) (65) (598) Post-tax new contribution per 1 million of free surplus invested * In order to show the UK long-term on a comparable basis, the 2014 comparatives exclude the contribution from the sold PruHealth and PruProtect es. The value of in-force comprises the value of future margins from current in-force less the cost of holding required capital as shown below: Asia 31 Dec 2015 m 31 Dec 2014 m US UK long-term Asia US UK long-term Value of in-force before deduction of cost of capital and time value of guarantees 11,280 7,355 5,817 24,452 10,168 5,914 5,756 21,838 Cost of capital (438) (229) (254) (921) (417) (199) (272) (888) Cost of time value of guarantees note (iv) (88) (1,012) (1,100) (113) (462) (575) Net value of in-force 10,754 6,114 5,563 22,431 9,638 5,253 5,484 20,375 The increase in the cost of time value of guarantees for US from (462) million in 2014 to (1,012) million in 2015 primarily relates to variable annuity, mainly arising from the level of equity market performance. Other movements for UK include the effect of a classification change, as discussed in note 9(iii). 01 Group overview 02 Strategic report 03 Governance 04 Directors remuneration report 05 Financial statements 06 European Embedded Value (EEV) basis results 07 Additional information Annual Report 2015 Prudential plc 315

20 Notes on the EEV basis results continued 11 Expected transfer of value of in-force to free surplus The discounted value of in-force and required capital can be reconciled to the 2015 and 2014 totals in the tables below for the emergence of free surplus as follows: Required capital note 10 4,704 4,556 Value of in-force (VIF) note 10 22,431 20,375 Add back: deduction for cost of time value of guarantees note 10 1, Expected cash flow from sale of Japan life (23) Other items note (1,948) (1,382) 26,287 24,101 Note Other items represent amounts incorporated into VIF where there is no definitive timeframe for when the payments will be made or receipts received. In particular, other items include the deduction of the value of the shareholders interest in the estate, the value of which is derived by increasing final bonus rates so as to exhaust the estate over the lifetime of the in-force with-profits. This is an assumption to give an appropriate valuation. To be conservative, this item is excluded from the expected free surplus generation profile below. Cash flows are projected on a deterministic basis and are discounted at the appropriate risk discount rate. The modelled cash flows use the same methodology underpinning the Group s embedded value reporting and so are subject to the same assumptions and sensitivities. The table below shows how the VIF generated by the in-force and the associated required capital is modelled as emerging into free surplus over future years m Expected period of conversion of future post-tax distributable earnings and required capital flows to free surplus 2015 total as shown above 1-5 years 6-10 years years years years 40+ years Asia 11,858 3,916 2,552 1,669 1,115 2, US 8,740 4,361 2,752 1, UK 5,689 2,097 1, ,287 10,374 6,802 3,760 2,074 2, % 40% 26% 14% 8% 10% 2% 2014 m Expected period of conversion of future post-tax distributable earnings and required capital flows to free surplus 2014 total as shown above 1-5 years 6-10 years years years years 40+ years Asia 10,859 3,660 2,289 1,553 1,026 1, US 7,471 3,867 2, UK 5,771 2,111 1, ,101 9,638 6,051 3,399 1,966 2, % 40% 25% 14% 8% 11% 2% 316 Prudential plc Annual Report

21 12 Sensitivity of results to alternative assumptions (a) Sensitivity analysis economic assumptions The tables below show the sensitivity of the embedded value as at 31 December and the new contribution after the effect of required capital for 2015 and 2014 to: 1 per cent increase in the discount rates; 1 per cent increase and decrease in interest rates, including all consequential changes (assumed investment returns for all asset classes, market values of fixed interest assets, risk discount rates); 1 per cent rise in equity and property yields; 10 per cent fall in market value of equity and property assets (embedded value only); The statutory minimum capital level (by contrast to EEV basis required capital), (for embedded value only); 5 basis point increase in UK long-term expected defaults; and 10 basis point increase in the liquidity premium for UK annuities. In each sensitivity calculation, all other assumptions remain unchanged except where they are directly affected by the revised economic conditions. New contribution Asia US UK long-term Asia US UK * long-term New contribution note 3 1, ,617 1, ,115 Discount rates 1% increase (260) (38) (40) (338) (176) (27) (38) (241) Interest rates 1% increase (15) 59 Interest rates 1% decrease (78) (127) (9) (214) (52) (101) 19 (134) Equity/property yields 1% rise Long-term expected defaults 5 bps increase (8) (8) (10) (10) Liquidity premium 10 bps increase * In order to show the UK long-term on a comparable basis, the 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect es. Embedded value of long-term Asia 31 Dec 2015 m 31 Dec 2014 m US UK long-term Asia US UK long-term Shareholders equity note 9 13,643 9,487 9,647 32,777 12,312 8,379 8,433 29,124 Discount rates 1% increase (1,448) (271) (586) (2,305) (1,214) (268) (602) (2,084) Interest rates 1% increase (380) (46) (328) (754) (462) (232) (362) (1,056) Interest rates 1% decrease 132 (93) Equity/property yields 1% rise , ,082 Equity/property market values 10% fall (246) (411) (373) (1,030) (221) (129) (380) (730) Statutory minimum capital Long-term expected defaults 5 bps increase (141) (141) (139) (139) Liquidity premium 10 bps increase The sensitivities shown above are for the impact of instantaneous changes on the embedded value of long-term and include the combined effect on the value of in-force and net assets at the balance sheet dates indicated. If the change in assumption shown in the sensitivities were to occur, then the effect shown above would be recorded within two components of the profit analysis for the following year. These are for the effect of economic assumption changes and short-term fluctuations in investment returns. In addition to the sensitivity effects shown above, the other components of the profit for the following year would be calculated by reference to the altered assumptions, for example new contribution and unwind of discount, together with the effect of other changes such as altered corporate bond spreads. In addition, for changes in interest rates, the effect shown above for Jackson would also be recorded within the fair value movements on assets backing surplus and required capital which are taken directly to shareholders equity. 01 Group overview 02 Strategic report 03 Governance 04 Directors remuneration report 05 Financial statements 06 European Embedded Value (EEV) basis results 07 Additional information Annual Report 2015 Prudential plc 317